VIPs
- While farmers have received financial relief from the trade war, their hopes for a favorable resolution continue to decline; their dour outlook has been exacerbated by unprecedented rainfall which led to May’s 13% spike in initial jobless claims in the Top Ten Farm States
- Independent of tariffs, the U.S. economy continues to slow as J.D. Power predicts first-half auto sales will hit 2013 lows; jobless claims in the Top Ten Auto States should rise further as the four-month fall in Chicago PMI’s Future Backlogs crashed to 2009 lows
- Since February, the combined decline in Chicago PMI New Orders and Future Backlogs suggest a deepening in the industrial recession; coupled with weak Fed regional factory surveys, downside in today’s ISM and upside in Wednesday’s layoffs should be expected
It’s that time of the summer. You can smell the fried chicken, taste the crunchy corn on the cob, regale in the sight of firework finales and channel your inner Ben Franklin to the sound of the Boston Pops. What a great country indeed. If the heat does call you indoors for a spell, don’t stop the feeling. Live stream Stripes, that American classic, but maybe not with the whole family present. You may recall (if you don’t, you’ve missed out in life) that the Bill Murray flick, strategically released just before July 4th, albeit 38 years ago, gave new meaning to breakfast fare. The Aunt Jemima Treatment may or may not have entailed a hot stove and a spatula, but the end result amounted to more foreplay and not so many flapjacks.
Speaking of anticipation, investors have tired of trade war prelims and are ready for delivery. It would seem they’ll have to wait a bit longer. While the United States stood down on restricting American firms from conducting business with Huawei and imposing additional sanctions on $300 billion of Chinese imports, the only thing China agreed to was resumed talks (have they ever truly been suspended?) and a re-commitment to U.S. agricultural purchases.
In what he hoped sounded intimidating, Trump said he would continue to negotiate “for the time being.” Net/net – the direct threat to the economy has declined while the paralysis induced by uncertainty has worsened. We wait and see…some more.
As for specific areas of the U.S. economy, things are less bad in the farm belt but only after $12 billion in relief deployed last July which was recently augmented by the Administration authorizing an additional $16 billion in bailout monies for farmers suffering as the trade war approaches the one-year mark. Despite the aid, only 65% of farmers surveyed in May by Purdue University and the CME Group expected a favorable outcome to the trade war, down from 77% in March.
The lack of lifted spirits comes down to a mad Mother Nature. The year ended April 2019 was the wettest in U.S. history. According to the USDA, less than half the planned corn acreage had been planted by mid-May, the least since 1995. And less than a fifth of the soybean crops had been planted, the most anemic showing in 12 years. As the heat finally sets in, job losses have come off their worst levels. June’s initial jobless claims in the Top Ten Farm States are only up 3.9%, off their 13% spike in May, which was the steepest increase (up is bad) since the last recession.
The hope is that China will over-deliver on its latest commitment to support the Farm Belt. It’s high time the sun finally rises over South Dakota, Nebraska and states starting with the letter ‘I.’ And surely vengeful Acts of God will not be commonplace two years in a row. The same cannot be said of the car industry, which has been buffeted by tariffs and an Act of Innovation — the advent of electric vehicles and the demise of the internal combustion engine.
It can’t help that the U.S. economy is slowing independently of the trade war. Edmunds just forecast that U.S. car sales would decline for the second time in three years as fleet sales lose their capacity to offset retail car sales weakness (to end drivers), which have fallen since mid-decade. J.D. Power just added to the stark outlook predicting first-half retail car sales would slump to 2013 lows.
As you can see, if you squint, since February, jobless claims in the Top Ten Auto States have bounced along the zero-line. After Friday’s gruesome Chicago PMI, we think it’s a safe bet to call the cycle. Jobless claims will definitively resume their upward climb as future demand has literally collapsed.
Not depicted are New Orders (current demand), which have plunged by 20 points over the past four months. We don’t share this series because we’ve seen one other month of similar bloodletting in the current cycle.
Future demand, a.k.a. Backlogs’, four-month decline of 22.9 since February, however, is unprecedented in the current expansion. In fact, you have to go back to 2009 to see such a precipitous decline. For any of you historians out there – this is the right time of the year to study our nation’s past – you’d have to travel all the way back to the recession of 1980 to arrive at the prior precedent. No, the distress signal emanating from the auto sector is not faint. Or in Bill Murray’s famous rally cry, “That’s the fact, Jack!”
Headed into Friday’s Chicago PMI, a chart was making the rounds showing that the other five regional Fed surveys had already validated consensus estimates for today’s ISM to skid to 51.3 from May’s 52.1. No surprise, QI will be focused on the forward-looking internals to assess whether we can expect a star-spangled outcome to the longest cycle ever.